March 20, 2015

On Wednesday, the Internal Revenue Service (IRS) published Notice
2015-25, which provides guidance the wind power industry has been waiting
for since the extension of the production tax credit (PTC) in
December.

Notice 2015-25 provides that any wind power project (or other PTC-eligible
project) that started construction prior to 2015 has until the end of 2016 to
be placed in service so as to avoid the application of either the
"continuous construction" or the "continuous work"
standards promulgated by the IRS in Notice
2013-29.2.

Under prior guidance, projects that qualified for PTCs by starting construction
prior to 2014 had to be placed in service prior to the end of 2015. The IRS'
newest notice gives such projects (and other projects that started construction
prior to 2015) until the end of 2016 to be placed in service. This gives the
developers time to sign a power purchase agreement or an interconnection
agreement or solve construction obstacles.

Notice 20115-25 is a function of the extension of the PTC that was enacted on
Dec. 19, 2014, in the Tax Increase Prevention Act of 2014. That legislation
extended the “start of construction” deadline to Dec. 31, 2014 (from the prior
deadline of Dec. 31, 2013) in order for projects to be eligible for PTCs. The
IRS had published three favorable notices in 2013 and earlier in 2014, which
contained critical safe harbors, that on their face applied only to projects
that started construction prior to 2014. Notice 2015-25 confirms that projects
that started construction in 2014 also benefit from those notices, and each
date in those notices is effectively pushed out one year.

Notice 2015-25 also confirms that the projects that started construction in
2013 benefit from the additional year to be placed in service. In theory, there
was a concern that the IRS would only give projects that started construction
in 2014 the additional year to be placed in service under the safe harbor,
while requiring projects that started construction in 2013 to be placed in
service by the end of 2015 to meet the safe harbor. However, due to certain
ambiguities in the “start of construction” rules, it could have been an
administrative challenge for the IRS to draw a line between construction
projects that were started in 2013 and those that were started in 2014. The IRS
eliminated the need to distinguish between the two by extending the “placed in
service” deadline for all projects that started construction at any time prior
to Jan. 1, 2015.

Notice 2015-25 is expected to enable a large number of projects to raise tax
equity or construction debt (with the lenders having assurances they will be
repaid by tax equity). It should enable 2015 and 2016 to be the strong years
the wind industry has been anticipating.